Evolving Business Models in Emerging Markets

Thanks to demographic trends and global shifts in the disease spectrum, there are enormous growth opportunities for the private healthcare industry – in particular, companies with affordable services could be very successful.

Management Summary

Challenge: There is high growth potential for the private healthcare industry in emerging markets due to demographic transition with an aging population, growing prosperity and an increase in chronic diseases. At the same time, healthcare services for large sections of the population need to be affordable and accessible.

Solution: “Hub and spoke” structures and the internationalization of defined business models provide opportunities to expand access to healthcare and generate growth. In addition to insurance and cash payments, public-private partnerships and working with NGOs are being considered as further financing approaches.

Results: Examples of successfully expanding companies can be found in many places, in the hospital as well as a diagnostics setting. The awareness of medical standards and quality-oriented treatment is growing in at least parts of the emerging markets.

Providing Affordable HealthcareExperts at the “Healthcare Business International 2016” conference in late April in London1 made it clear that change in the emerging markets offers substantial growth potential for the private healthcare industry – and at the same time requires innovative business models. According to the experts, the driving force behind the development is demographic transition – with an aging population, growing prosperity and an increase in chronic diseases, which results in growing demand for healthcare services in large sections of the population. Abrar Mir, Managing Partner of the Asian investment company Quadria Capital, predicted that the greatest prospects of profit in return is not in elitist, high tech medicine for the rich, but rather in affordable care for the mass market. He claimed that EBITDA margins of up to 40 percent are possible.2

Mexico, with its approximately 120 million inhabitants and a disease spectrum that is now similar to those in industrialized countries, is also an up-and-coming market, stated Jaime Cervantes, CEO of the Mexican private healthcare integrated services provider Vitalmex. Unlike the situation in India, Mexico has a comprehensive national health insurance program – with simultaneously high private healthcare expenses.3 Generally speaking, the financing of healthcare services in the emerging markets is often quite precarious. In addition to insurance and cash payments, public-private partnerships or working with NGOs can offer further financing approaches.

Expanding and Internationalizing BusinessIt is also clear that healthcare services do not just have to be affordable for patients, but must also be accessible. Experts see major growth potential in the future in expanding services from metropolitan regions to semi-urban and rural areas, for example using a “hub and spokes” model and the use of telemedicine. India’s Apollo Hospitals is using this strategy with its network of reach hospitals and clinics in peripheral areas.4

The internationalization of business models is also catching on in the emerging markets. The Indian diagnostic company SRL, which has branch offices in Nepal, Sri Lanka and Dubai, plans to open laboratories in the Congo and Nigeria, among other places, in the future.5 Meanwhile, South Africa’s Lancet Laboratories Group already has locations in ten other African countries, including Kenya, Zimbabwe and Ghana, and earns approximately one-fifth of its revenue at those locations – and those numbers continue to grow. “When transferring a business model to another healthcare system you need to understand the structures and basic conditions there,” Peter Cole, Managing Partner at Lancet Laboratories, explained.6 For example, taxes and purchase costs as well as health insurance benefits, the demand for specific lab tests or the possibility of direct B2C business varies from country to country.

Increasing Quality and Integrating CareMeanwhile, the awareness of medical standards is growing in the emerging markets (despite known quality problems such as cheap, non-certified labs). Abu Dhabi, which is pursuing the claim of world-class medicine and placing increasing importance on quality indicators, is a prime example of this, as Ronald Lavater, CEO of the Al Noor Hospital Group, explained in London.7 Jaime Cervantes of Vitalmex also believes it is a critical factor in the implementation of best practices in specialized treatment centers.

As far as chronic diseases are concerned, “specialized and coordinated treatment is essential,” states Wolfgang Hofmann, SVP and Head of Integrated Care at Fresenius Medical Care.8 The company now operates almost 3,500 dialysis clinics around the world in developed and emerging markets. However, in the future they do not want to just perform dialysis treatments, but also want to integrate the management of comorbidities, such as damage to the heart, in coordinated treatment networks, states Hofmann. He says their ultimate aim is to increase the patient’s quality of life – as well as the company’s bottom line.

About the Author

Martin Lindner is an award-winning science writer based in Berlin, Germany. After his medical studies and a doctoral thesis in the history of medicine, he went into journalism. His articles have appeared in many major German and Swiss newspapers and magazines.

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7Ronald Lavater: How Gulf Healthcare Is Set to Change. Presentation at the Healthcare Business International 2016 Conference, London, 25–27 April 2016 (www.healthcarebusinessinternational.com/hbi2016; accessed 2 May 2016)

8Interview with Wolfgang Hofmann, London, 26 April 2016

The statements by Siemens’ customers described herein are based on results that were achieved in the customer's unique setting. Since there is no "typical" hospital and many variables exist (e.g., hospital size, case mix, level of IT adoption) there can be no guarantee that other customers will achieve the same results.